WEEKEND headlines - including those about the emergency summit of European Union leaders on the global financial crisis and Iceland’s economy, said to be on the brink of collapse - reinforced the seriousness of the Policy Council announcement on Friday about maintaining confidence in the local banking sector and addressing the concerns of local depositors.
It also showed how fast moving the current crisis actually is. As the council was saying that the banks locally are properly capitalised and continuing to meet their obligations and liabilities, confidence was ebbing away from Icelandic banks and Landsbanki, which also operates here, had its credit rating reduced and was forced to sell off some of its assets.
That development alone highlights the pressing need for a depositors’ protection scheme and the efforts being made by regulators here and in Jersey jointly to win support from the authorities in the jurisdictions in which the parent banks of local operations are based.
For the potential scale of the problem is, as we argued on Saturday, such that it is beyond the ability of Guernsey to intervene in any significant way, such as Jersey’s pledge to underwrite residents’ deposits. Iceland, with a population approaching 300,000 and a GDP close to $12bn, is struggling to cope with the difficulties facing just four of its banks and Germany’s Hypo Real Estate was facing an uncertain future after the failure of a £27bn rescue plan.
By contrast, Guernsey’s GDP last year was just £1.6bn so it is entirely reliant on the actions of other, much larger, jurisdictions to minimise the effects of the financial crisis.
The same holds true for Jersey, although ministers there have agreed to offer 100% cover for all islanders. It has done so on the basis that the pledge will never need to be honoured - a level of risk Guernsey’s ministers were unwilling to accept.
There is another factor in this, too. Even if the chief minister here felt that a deposit protection scheme was vital for the island’s economic stability and that an announcement had to be made urgently to stave off disaster, there was nothing he could have done with the powers available to him.
To paraphrase the Institute of Directors’ conference concerns, it takes a crisis to show that there’s no one driving the bus and that cannot continue.
Bank crisis reveals gap in powers
WEEKEND headlines - including those about the emergency summit of European Union leaders on the global financial crisis and Iceland’s economy, said to be on the brink of collapse - reinforced the seriousness of the Policy Council announcement on Friday about maintaining confidence in the local banking sector and addressing the concerns of local depositors.
It also showed how fast moving the current crisis actually is. As the council was saying that the banks locally are properly capitalised and continuing to meet their obligations and liabilities, confidence was ebbing away from Icelandic banks and Landsbanki, which also operates here, had its credit rating reduced and was forced to sell off some of its assets.
That development alone highlights the pressing need for a depositors’ protection scheme and the efforts being made by regulators here and in Jersey jointly to win support from the authorities in the jurisdictions in which the parent banks of local operations are based.
For the potential scale of the problem is, as we argued on Saturday, such that it is beyond the ability of Guernsey to intervene in any significant way, such as Jersey’s pledge to underwrite residents’ deposits. Iceland, with a population approaching 300,000 and a GDP close to $12bn, is struggling to cope with the difficulties facing just four of its banks and Germany’s Hypo Real Estate was facing an uncertain future after the failure of a £27bn rescue plan.
By contrast, Guernsey’s GDP last year was just £1.6bn so it is entirely reliant on the actions of other, much larger, jurisdictions to minimise the effects of the financial crisis.
The same holds true for Jersey, although ministers there have agreed to offer 100% cover for all islanders. It has done so on the basis that the pledge will never need to be honoured - a level of risk Guernsey’s ministers were unwilling to accept.
There is another factor in this, too. Even if the chief minister here felt that a deposit protection scheme was vital for the island’s economic stability and that an announcement had to be made urgently to stave off disaster, there was nothing he could have done with the powers available to him.
To paraphrase the Institute of Directors’ conference concerns, it takes a crisis to show that there’s no one driving the bus and that cannot continue.
Article posted on 6th October, 2008 - 2.37pm